Agenda Packets - 1987/09/14 - Laserfiche WebLink

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RS-1. Property Tax Reform (A) (cont'd) assistance, not because of rising city spending. over the 1980-85 period, after adjusting for inflation, cities' net property faxes (att,z,• homestead credit) rose 18.4 percent, while cities' expenditures actually declined 2.4 percent. Over the same period, federal assistance to cities declined 19.3 percent and state assistance declined 7.1 percent. As a result, cities have been forced to increase their reliance on locally -derived revenue to a point where they now depend upon their own sources for nearly two-thirds of their revenue. RS-2 Local Government Aid and State Funding to Cities (AA) The factors of inflation, the increased costs of state and federal mandates and the large reductions in federal aid were ignored in 1987 when the Legislature decided to freeze LGA payments, impose a very stringent three percent levy limit, and impose the six percent motor vehicle excise tax on city purchases. These actions --combined with declining property values in some regions of the state and the $40 million loss of federal general revenue sharing for Minnesota cities --have clearly begun to jeopardize the continuation of many vital city programs. Local government aid should not be sacrificed in any attempted reform of the state's property tax structure. Last year, Governor Perpich recommended that LGA, along with other property tax relief funds, be directed solely to *hools through a new "Education Credit." Such a proposal would have virtually abolished the state's role in providing property tax relief for city services and would have led to a less equitable and less stable property tax system. The League commends the legislature for rejecting this proposal. Local government aid is a major source of revenue which complements cities' other significant revenue source, the property tax. As such, LGA must be distributed among cities in a way which alleviates the problems inherent with reliance on the property tax. cities vary markedly in their ability to raise revenue from property taxes. There are also wide variations among cities in their citizens' needs for services and the costs of providing those services. A complementary revenue source for cities is necessary precisely because a city's ability to raise revenue from the property tax does not necessarily - 53-